Alibaba Is in Talks With Hong Kong Stock Exchange Over Ownership Structure

By

Prudence Ho,

Telis Demos And

Juro Osawa

Aug. 18, 2013 1:04 a.m. ET

HONG KONG—Alibaba Group Holding Ltd. is in talks with the Hong Kong Stock Exchange to come up with an ownership structure that would allow the Chinese e-commerce company to list its shares while enabling founder Jack Ma and his management team to maintain control, people familiar with the talks said.

Alibaba, which operates shopping sites where merchants sell items directly to consumers, could raise billions of dollars in an initial public offering of stock as early as this year and is deciding whether to list its shares in Hong Kong or New York. The IPO could value Alibaba at US$70 billion, based on analysts' estimates, making it one of the world's biggest Internet IPOs and a much sought-after prize for stock exchanges, investors and the bankers who advise the company.

If the IPO takes place in Hong Kong, it would be one of the biggest in the city in recent years.

ENLARGE

Alibaba founder Jack Ma
Agence France-Presse/Getty Images

The Hong Kong exchange—where Alibaba's online trade platform, Alibaba.com, was listed until the group took it private last year—has always been an option, people familiar with the company have said. But the exchange doesn't allow a dual-class structure—a structure commonly used in the U.S. that makes it possible for founders and other key shareholders to maintain enough voting rights to control a company even after it goes public. The New York Stock Exchange and the Nasdaq Stock Market allow companies to have such a structure.

To find an alternative to a dual-class structure, Alibaba and the Hong Kong exchange are discussing creative ways to enable Alibaba's key owners to maintain a certain level of control over the company, two people familiar with the talks said. The people declined to elaborate on the possible alternative structure.

Major U.S. technology companies such as Facebook Inc. and Google Inc. have dual-class structures that allow the companies to issue two classes of shares with different levels of voting rights, so founders and management can have more voting rights than they would have in the absence of such a structure. That makes it more difficult for hedge funds or shareholder activists to take over the company's decisions.

A Hong Kong Stock Exchange spokeswoman declined to comment.

In a media briefing Thursday, Hong Kong Exchanges & Clearing Ltd. Chief Executive Charles Li said the exchange has "no plans at the moment" to amend the rules to allow dual-class shares. "Protecting investor interest" remains one of the most important tenets in protecting the market's health, he said.

Two years ago, the exchange rejected a request from U.K. soccer club Manchester United Ltd. to list in Hong Kong with a dual-class structure. The club's owner, the Glazer family, listed Manchester United in the U.S.

Mr. Ma, the executive chairman, owns about 7% of Alibaba Group. Japanese telecommunications company SoftBank Corp. holds 36.7% and Yahoo Inc. has 24%.

A spokesman for Alibaba said the company hadn't decided on where it will list. The company also hasn't formally appointed underwriters on the deal and hasn't informed banks whether they would be underwriters, he said.

People familiar with the talks between Alibaba and banks said that Credit Suisse Group AG and Morgan Stanley are in strong positions to play leading roles in the IPO.

Credit Suisse was lead financial adviser to Alibaba's $7.1 billion deal to buy back its own shares from Yahoo last year, and the bank advised and funded the $2.5 billion deal to take Alibaba.com private. In addition, Credit Suisse analyst Wallace Cheung joined the investor-relations department of Alibaba this year.

Morgan Stanley was one of the main underwriters for Alibaba.com's IPO in 2007 and was one of the main banks to fund Alibaba's recent $8 billion loan.

The two banks also have strong credentials as tech IPO bankers, especially in New York. Morgan Stanley was the lead adviser on Facebook's $16 billion IPO last year.

Banks have been competing feverishly to get in on the IPO. Some have been holding meetings with Mr. Ma since May of last year, when Alibaba struck the deal to buy back some of its own shares from Yahoo, according to people familiar with the situation.

The terms of that deal gave Alibaba the right to buy back more of Yahoo's remaining stake in the Chinese company upon an IPO before December 2015.

John Crompton, the London-based global head of equity capital markets at HSBC Holdings PLC, has been flying often to Hong Kong to meet with the management, people familiar with the situation said.

Citigroup Inc. Chief Executive Michael Corbat met with Alibaba executives in May during his Asia trip, another person familiar with the situation said.

Alibaba's net more than tripled to $669 million for the three months through March from $220 million a year earlier, while the company's revenue jumped 71% to $1.38 billion, according to Yahoo.

—Kana Inagaki in Tokyo and P.R. Venkat in Singapore contributed to this article.

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